Central Bank comments on situation in currency market

Russia’s Central Bank can adjust its daily purchases of foreign currency to curb the ruble’s volatility as part of the implementation of the budget rule mechanism, the regulator said in a press release on Friday. Meanwhile, transactions as part of the budget rule will be fully carried out within a longer period of time.

The surge in the ruble’s volatility over the past several days naturally stems from the financial market’s reaction to reports about new potential sanctions. "Such volatility episodes emerged earlier amid discussions over sanctions-related restrictions and were temporary. Substantial sales of export currency earnings still back the ruble," the Central Bank explained.

The regulator added that there are enough instruments in place to prevent financial instability threats.

Foreign currency purchases

The Bank of Russia purchased $8.4 bln rubles ($125 mln) worth of foreign currency on the domestic market for the Finance Ministry for August 9 settlement (virtually on August 8).

Russia’s Finance Ministry said earlier that it would allocate 383.2 bln rubles ($6 bln) worth of extra oil and gas revenues for foreign currency purchases in the period between August 7 and September 6, 2018. The amount of daily foreign currency purchases was planned at 16.7 bln rubles ($263 mln).

Russia’s Finance Ministry started forex purchases within the budget rule, which stipulates allocation of extra revenues received from higher oil price compared with the one priced into the budget (above $40 per barrel), for forex purchases, since February 2017.

Prior to 2018, the ministry bought currency on the basis of forecasted rate of the Russian ruble priced into the budget, and the oil price in rubles. Starting January 1, 2018, it switched to a new formula, which implies that the amount of transactions depends on the actual rate of the ruble in the previous month, rather than the forecasted one.

The Russian currency is under pressure as the United States announced plans to impose new sanctions on Moscow over its alleged involvement in the poisoning of Sergei and Yulia Skripal in the British city of Salisbury. The first round of sanctions will take effect on August 22, while a second round may be introduced in 90 days in case Russia fails to meet certain conditions, the US State Department said.

Kommersant daily also wrote earlier this week about a bill on new sanctions to be slapped against Russia that was drafted by US Senanor Lindsey Graham and his three colleagues. The bill particularly mentions a possible freeze of assets and restricted transactions in the United States for seven Russian banking structures, including Sberbank, VTB, VEB and Promsvyazbank.